The Reckoning
The Future of American Power

Nov. 5 2012 9:00 AM

The Katrina-Sandy Learning Curve

Sandy satellite image
Hurricane Sandy churns off the Eastern seaboard on October 29.

Photograph by NASA via Getty Images

You can never really be sure how anyone - even the most successful person - will react to tough times until they have actually experienced them. The proof is in the pudding, not in the pretty package it’s wrapped in. Performing well in a crisis, learning from your own mistakes – these are intangible but very important indicators of the strength and character of any person.

The same could be said of any country, too. For some time now, the US appeared to be failing this test. In recent decades, our national decisions could hardly have been more self-defeating:

·         dismantling the progressive tax system and causing income inequality (ignoring the lessons of America’s own early 20th century success);

·         poking our nose into others’ business and expecting no repercussions (until 9/11, at least, thereby not heeding the lesson of Pearl Harbor);

·         invading Iraq (thus ignoring what we learned at great cost in Vietnam);

·         removing all limitations on the ability of money to pervert our politics (ignoring the lessons of the Teapot Dome scandal, to cite just one);

·         compounding the whole mess by radically deregulating our financial system (ignoring the lessons of the Great Depression).

Few people look at the world with this kind of wide lens, of course. The narrow focus – the quarterly tyranny of shareholder earnings reports, the absurdly short two-year terms of House members, the partisan wasteland that is our media these days, video games, speed dating, disposable diapers, Dixie Cups and divorces, all argue against “the long view.”

And for that reason, I think the United States can take some solace in the difference that the seven years between Hurricane Katrina and Hurricane Sandy have made. Neither preparations nor response have been perfect. But given the potential scale of the death toll in America’s most populated coastal zone, Sandy should be seen as a bullet dodged, notwithstanding the tragic deaths the storm left in her wake.

In the destruction unleashed on my home state of New Jersey, and in the resilience of people in Connecticut and New York, too, I can’t help feeling a little optimism. I saw it first hand in the days and weeks after 9/11, and I know how these moments sweep away the clichés about the gruff, allegedly uncaring people of the so-called "tri-state region."  

Now, though, based as I am in London, I’m witnessing the drama from afar, just as I did with Katrina. And at least from here, the impression is completely different. Rather than the government ineptitude and chronic social Darwinism on display after Katrina, the image seen by the rest of the world after Sandy is of a valiant struggle to limit the damage that inevitably results when nature comes calling.  

Hit by a storm larger than any other ever recorded in the Atlantic Ocean, for the most part the reaction – from neighbors, neighboring states, private and charitable groups, federal agencies and the US military -- has been competent, swift and probably saved hundreds of lives. All of this was true in 2005 during Katrina, of course, except for the part about the federal government.

Politics aside for a moment, there is ample evidence here that the country has learned since Katrina. Very few people would argue (at least in the wake of the storm) that pre-storm evacuation orders from local officials were driven by panic or an instinct among politicians to cover asses.

Similarly, FEMA, a synonym for incompetence during Katrina, has moved forcefully into the storm zone and marshalled whatever resources our austere federal budget allows. Not for nothing, as we say in Jersey, did FEMA get a shout out from Republican New Jersey Gov. Chris Christie.

“The president has been outstanding and so have the folks at FEMA,” he said.

Too much, I think, is made of the alleged political calculations behind Christie’s remark. Yes, I understand he has an interest in seeing Mitt Romney lose and, by association, in discrediting the Tea Party faction that abhors his liberal social views. But I see in Christie’s words a Jersey Boy’s response, not a Republican or Democratic one. Watching the state’s seaside pleasure parlors tumble into the sea, knowing it killed dozens across his state, is it any he lashed out at reporters who asked about the election during those first hours?

The same is true, I would argue, New York Mayor Michael Bloomberg’s Sandy-fueled decision to endorse Obama’s re-election. This does no particular good to Bloomberg, who already has whatever meager votes climate change is capable of delivering.

Indeed, Bloomberg, in announcing his endorsement, reminded me of Yul Brynner’s Pharoah, having just watched the Red Sea swallow his army. This was something of a mea culpa from a man who has studiously, deliberately avoided climate change for tactical and political reasons, preferring to emphasize “green” policies or the negative health consequences of coal. Now, with the dead floating in Staten Island’s streets, “end-run” strategies for addressing the issue could no longer be countenanced, nor his neutral stance toward the presidential election.

These are signs of intelligence life, things to be grateful for, and not because they praised Obama, per se, but rather because the federal reaction to Sandy, and the political reaction afterward, suggests the much maligned body politic may still have a pulse after all. Christie and Bloomberg, with their statements at times of crisis, have underscored the most important lessons of tragic disgrace that was Katrina: You can’t foist responsibility for protecting American citizens from monster storms onto state, local and charitable institutions. And, more importantly, a government that continues to deny the existence of forces that are making these disasters more severe cannot duck culpability for their victims.

Whatever happens Tuesday, that’s good news for the country.

Nov. 5 2012 7:02 AM

Iran-Israel standoff draws in another player: Azerbaijan

sculpture of aliyev
An sculpture of former president of Azerbaijan, Heydar Aliyev. Should he be looking over his shoulder, instead?

Photograph by Ronaldo Schemidt/AFP/Getty Images

From my weekly globalpost column:

The standoff between Iran, Israel and the United States over Tehran’s nuclear weapons ambitions has drawn in another player: Azerbaijan.

According to intelligence officials, Iran’s security services have concluded that Azerbaijan, its Muslim neighbor to the north, has been enlisted by Israel in a campaign of cyber attacks, assassinations and detailed military planning aimed at destabilizing and ultimately destroying Tehran’s nuclear research program.

That Iranian perspective, described by a range of current and former US intelligence officials who asked that their names remain confidential, has led to a crackdown on Iran’s sizeable ethnic Azeri minority and the launch of an Iranian counter espionage offensive to destabilize the government of President Ilham Aliev. Ethnic Azeris are Iran’s largest minority group, comprising about 16 percent of the population, mostly clustered along the northern border and in Tehran.

Over the past several years, as tensions between Israel and Iran have heightened and US and European talks on Iran’s nuclear program have stalled, Iran has been rocked by a series of assassinations of senior Iranian nuclear scientists and at least one instance where a complex and damaging computer virus, called Stuxnet, was inserted manually into the servers of its nuclear program.

Iranian officials have publicly blamed these attacks on the Mossad, Israel’s foreign intelligence agency. But US officials say Iran has recently concluded that the assassinations and other acts of sabotage has been orchestrated with the help of Azerbaijan.

Nov. 2 2012 5:22 AM

Energy Independence? From Reality, Perhaps, but Not From the Rest of the World

He’s an advocate for restarting the construction of nuclear power plants in America. He wants to see more oil flowing from Alaska’s North Slope. He’s done battle with environmentalists to ensure oil companies quickly resumed drilling in the Gulf of Mexico after the BP spill. He avoids talking about climate change on the campaign trail, and if he's elected, I have been assured by people close to him that he will approve the construction of the Keystone oil sands pipeline before the cherry blossoms bloom in Washington.

Who is this mystery man?

Mitt Obamney. Or is Barack O’Romney.

When it comes to U.S. energy policy, you could barely slide a solar panel between the two presidential rivals. Of course, a visit to either man’s campaign website will say something very different: Words are cheap, after all, and there’s no more finely honed American political tradition than attacking your rival for something he hasn't yet done.

Romney’s energy plan was “written by Big Oil,” we’re told by Obama’s site, and will open up drilling off Virginia and North Carolina that will threaten the beaches of important swing voters ... ah, I mean, Americans.

Obama has “sent billions of taxpayer dollars to green energy projects run by political cronies,” Romney retorts, and is hell-bent on bankrupting the coal industry. (Did you hear that, Pennsylvania? How about you, Ohio?)

Blah blah blah ... blah blah.

There are important differences between these two men, primarily on environmental as opposed to energy issues. Climate change—suddenly of interest again both to the U.S. electorate and to politicians in Sandy-battered Atlantic seaboard—is probably the most important one. Obama’s a believer, Romney the unbeliever. (How’s that for a world upside down?)

But climate change isn’t going to sway this election, and it would be a great mischaracterization of Obama to claim that he has crusaded on behalf of the changes that most scientists see as necessary to make any difference in that regard.

In fact, while Mitt has gone around making fun of the notion that climate change will cause problems for us humans, Obama kept away from the issue, too, until Sandy blew in. He was probably heeding the feckless pollsters and political strategists who have decided that an electorate still reeling from the worst recession since the Great Depression doesn’t give a damn about melting ice caps.

Just take a peek at the headline the Obama campaign site has on its environment section: Environment section? “Investing in clean, American-made energy.”

Smart politics, I’m sure. But high-minded? Visionary? Worthy of Rachel Carson? You be the judge.

In many ways, this made-in-America fetish on energy is the biggest lie of the many, many lies that have been tossed around during this electoral cycle. It’s big because it can be disproven by simple math. But there are also market forces at work.

Energy is made in the Earth, folks, not “in America.” Unless we adopt a centrally planned economy like the one that served the Soviet Union so well, energy prices will be set on world markets by supply and demand. We may reduce our demand for imports, but growth elsewhere will shape up the surplus. We’re in an age with a severe lack of excess oil capacity, and that means high prices, volatile price swings, and very little scope by any single producer to affect prices.

Now, some commodities are cheaper nearer to the source: You can buy a 3 1/2 pound lobster off a Maine dock for about $10, for instance. There are a lot of reasons for this—one of which is that it is very difficult to buy that same live lobster in South Korea. It takes jet fuel, cargo handlers, customs agents—and a whole lot of ice (one hopes).

Energy is not like that, and especially oil. Natural gas at last is hard to move around; oil is relatively simple, and the logistical challenges have been solved for decades. So this is one reason I cringe every time I hear the “energy independence” line.

Obama’s position on this debate has been more typically nuanced. He avoids the term “energy independence” and speaks of becoming “more independent” or, as the Democratic Party’s website says, moving to “reduce our dependence on foreign oil sources.” This is honest as far as it goes.

Romney’s campaign is as fervent in promising a world without energy imports as it is in denying climate change. But even here, math has forced changes. After years of demanding “U.S. energy independence,” as he did during his failed 2008 presidential bid, Romney’s advisers have manufactured a fudge to make the energy independence lie a bit more palatable.

Rather than talk about U.S. energy independence, which is patently absurd (at least until we figure out how to heat our homes with delusions), he now talks of “hemispheric energy independence.”

The irony of the Republican Party essentially proposing an energy version of NAFTA is fairly rich. Will we drill holes in the border fence for the pipelines?

Here’s what his campaign site say about the topic on its Energy Policy page – at least when the page finally finishes a long attack on “Obama’s Failure:”

“Mitt will make America an energy superpower, rapidly and responsibly increasing our own production and partnering with our allies Canada and Mexico to achieve energy independence on this continent by 2020.”

Is Romney using the p.c. version of “America,” by which everyone from the Inuits of Baffin Island to Argentine fishermen on Tierra del Fuego can lay claim to being an American? If so, this is yet another Republican first—and it still fails to meet the mathematical challenge of hemispheric independence. Nigeria, Angola and our friends in the Gulf can breathe a sigh of relief.

Like most of Mitt’s numbers, these just don’t add up. The U.S. Energy Information Administration, the most widely regarded source of energy projections in the world, estimates that even with optimistic assumptions, U.S. imports of oil will fall from 8.9 million barrels a day today to about 7.5 million p/d in 2035.  That’s a long way from Tipperary.

This week, the Economic Intelligence Unit, the consultancy arm of the storied British magazine, released a report on the topic that demonstrates beyond a doubt the fallacy at the heart of this slogan.

In “Independence Day: A special report on North America’s oil and gas boom,” the EIU hails the technological innovations that have definitely changed the game for the US. Shale gas and tight oil are real, and assuming neither poisons a major US aquifer (a very real threat, I think), they will mean that the US imports less oil and broadly pays a bit less for gas, too.

But energy independence by 2020? In the polite words of the EIU, “This excitement is not justified ... and over-simplistic.”

There will be benefits from the oil and gas boom going on in the US. Employment is one obvious benefit—and industry that booms will create jobs. It also creates a revenue flow for those letting their land for drilling, for the scientists and engineers seeking to improve current techniques, and of course profits for the companies exploiting the resources.

In a macro sense, as the EIU notes, “[r]educing oil exports could help shrink the trade deficit. There would be an ever greater benefit to the trade balance if, meanwhile, gushing US oil output led to more exports of higher-value refined petroleum products (the US became a net exporter of refined products in 2011, partly because of sluggish domestic demand). Improvements in the current account position would reduce US borrowing needs and lead—all else equal—to a stronger dollar. Yet this is a more modest assessment of the usefulness of increased self-sufficiency in oil than what is commonly purveyed.”

Translation: You (the voter) are being sold (purveyed) a line of bullshit (usefulness of self-sufficiency).

The value of the North American oil and gas boom is real. But it should be understood in context, weighed against the risks, and pursued because it makes economic sense, not because Americans once again embrace a political slogan like “drill baby drill” as though it was chiseled into the tablets brought down from Mt. Sinai.

One does get weary ...

Nov. 1 2012 12:49 PM

Should the US Be Ranked Number 2 in the World on Health?

As anyone who has every tried to create a foolproof system for anything will tell you, the perfect machine – the flawless economic model – simply does not exist. Ask the boys at Long Term Capital Management, the hedge fund of the 1990s led by two Nobel winning economists that nearly brought down the US economy in 1998. Nobody knows everything – period.

This thought occurred to me last night as I attended the launch of the Legatum Institute’s latest Prosperity Index last night in London.

This index, a broad and intellectually rigorous effort to find something better than GDP to measure a nation’s wealth, is something any smart person can get behind. Essentially, Legatum adds such elements as education, social support, entrepreurship and opportunity, personal safety and health to its index. It’s interesting to see how this shakes up the “league tables” so many of us (myself included) fixate on. So, here’s Legatum’s Index compared with the 2011 IMF GDP rankings:

IMF Rankings by GDP                                    Legatum Rankings (Prosperity Index)

1 United States                                    1. Norway

2. China                                               2. Denmark

3. Japan                                               3. Sweden

4. Germany                                         4. Australia

5. France                                             5. New Zealand

6. UK                                                    6. Canada

7. Brazil                                               7. Finland

8. Italy                                                 8. Netherlands

9. India                                                9. Switzerland

10. Canada                                          10. Ireland

11. Russia                                            11. Luxembourg

12. Spain                                             12. United States

13. Australia                                        13: UK

14. Mexico                                          14. Germany

15. South Korea                                   15. Ireland

This is great stuff. This year, for instance, was the first since the index began in 2009 that the US has fallen out of the top ten. Not much of a sample, but still interesting.

Why mess with GDP? GDP has been around since the Depression. It’s a measurement of all goods and services produced by an economy, and, as such is useful. It’s also nice, whether the topic is economic growth, military power or baseball, to be able to avoid asterisks (in baseball’s case, for steroid enhanced performance, for instance. Then again, mortgage-backed securities are a sort of economic steroid, I suppose, but that’s another post ...)

But projections based on GDP can be very flawed. A country can produce an ever increasing amount of goods and services, but the measurement only goes so far if those goods and services are monopolized by a small, corrupt elite.

GDP growth in Latin America, for instance, has been a great story since the mid-1990s. But it remains the most unequal continent n the world in terms of wealth distribution. So why are we so fixated on GDP growth in Paraguay being higher than it is in Estonia if people in Paraguay are miserably poor?

This is an important economic debate – with serious implications for the way we look at China’s rise, India’s struggles, Africa’s fast growth, etc.. And that’s why, as wonderful as I think Legatum’s efforts are, I have to point out the flaw.

Legatum ranks the United States number 2 in the world in health care. How can this be? Is this some evil plan by right-wingers to argue that free market, drop-the-poor health systems produce better results?

Certainly, indicators of health don’t support the notion. We have much higher infant mortality than Europe, (6.5 per thousand compared with 3-per-thousand in Europe). We live less long, we are obese, and let’s face it, we spend a fortune on our insurance.

Oh, yeah, and 25 PERCENT OF US HAVE NO ACCESS TO HEALTH CARE outside a hospital emergency room.

Interestingly, when you look at the page where the health sub-index is explained, the answer to this rogue result is plain to see. The criteria are hospital beds, spending per capita, under-nourishment, health adjusted life expectancy, infant mortality, water quality, sanitation, death from respiratory disease, health problems, well-rested, satisfaction with environmental beauty, level of worrying, satisfaction with health.

But “access?” It’s invisible. Indeed, by adding “spending per capita” the case is skewed even further. That’s like saying the Camden NJ school system is the best in the world because it spends more per student than any other district.

Egad! I still support what Legatum is doing. But that’s just a glaring, obvious flaw in their model. I admire many of those connected with the Institute, and assume there’s been no deliberate attempt to skew the numbers. We’ll know for sure if they change them up next year. It's an honest mistake, I think, and unlike the ones made in global finance, it's easy to fix.

Oct. 30 2012 10:23 AM

Will China Overtake the U.S. On the Next President's Watch?

shanghai skyline
Shangai's Pudongs Lujiazui Financial District: Kansas City, indeed!

Photograph by Feng Li/Getty Images

 "We will lift Shanghai up and up, ever up, until it is just like Kansas City!"

—U.S. Sen. Kenneth Wherry, R-Neb, 1940

Just over a year ago, I launched this blog with a chart showing the gradual erosion of American economic dominance that is projected to occur over the course of the next presidential term. The projections of that chart—based on the April 2011 IMF World Economic Update—led some to question whether such a thing could really happen so quickly.

Sadly, our grasp of such things today isn't much better than the Nebraska senator's was in 1940.

Since this blog went public last October in a deliberate attempt to provoke debate on the relative decline of the U.S., both the U.S. and Chinese economies have slowed a bit. The latest quarterly numbers for China in October 2011 showed annual growth of about 9 percent; for the U.S. the figure was just about 3 percent.

The latest figures show the US economy grew at a 2 percent annual rate in the third quarter of this year. That beats recession, but it’s hardly something to crow about. In China, the slowdown meant growth of 7.4 percent—or, to put that slightly differently, a pace that would double the size of China’s economy in just over 13 years.

The Economist magazine, which keeps close tabs on these things, took issue with the IMF numbers, publishing a revised chart that suggests a slightly brighter picture for the U.S. The assumptions the magazine’s app makes in default mode—China long-term growth at 7.75 percent per year, and the U.S. at 2.5 percent—don’t seem impossible. At that rate, America gets a two year reprieve—to 2018—before being knocked from a pedestal it has occupied since just after World War I: World’s biggest economy.

I can hear the cheers now: “Two more years! Two more years!”

Of course, adjust the numbers just a bit—for instance, factoring in a fiscal cliff—and you get a very different result. A U.S. in recession and a China that just stays slightly below its growth rates for the last decade—say 8 percent—and the IMF starts to look optimistic.

Now I'm not a China-basher. China has plenty of its own problems, not least of which is an authoritarian government that executes 6,000 people a year without due process. But a sensible country would have more than a name-calling match during their presidential campaign over an issue this large. What should our relationship be like with China? How should the U.S. encourage democracy, fair trade practices and a stable East Asia? Except to use China as a way to attack their opponent, sadly, there has been barely a mention of these gigantic questions.

With most people focused on the tit-for-tat claims of the U.S. election, it might seem like just so much economic thumb-sucking to bring this up now. China, it will be argued, has to grow much faster to maintain social peace. And besides, it’s growing from a “lower base.” Because of the relative size of the U.S. v Chinese economies, U.S. growth of 2 percent represents a much larger amount of economic activity than it would in China.

True enough. In terms of “nominal GDP,” which measures the market value of goods and services produced by a country, the U.S. remains nearly three times the size of China.

But don’t get too comfortable with that palliative. Measured in Purchasing Power Parity—the value of all goods and services a nation’s economy produces if differences in currency valuation are factored in—the size of China’s economy, according to the IMF, was about $11.2 trillion the size of China’s economy is $11.1 trillion, compared with $15.0 trillion for the U.S. And the gap is closing.

Why should you care? Isn’t the budget deficit, the distorted tax system and our unsustainable pension and medical problems the real problems?

I’d argue they are symptoms. The affliction suffered by the United States right now is an inability to come to terms with a changing environment and to adapt to new realities. We will not, as Mitt Romney ridiculously promised during his campaign, grow at 4 percent a year for a decade. That would be twice as fast as America’s historic growth rate—a rate compiled during decades in which much of the world was locked behind the Iron Curtain and the other half recovering from the most devastating war in human history.

The United States needs to trim its sails and do so wisely. It needs to stop playing global policeman, demanding more of its allies abroad. It needs to use its waning influence to stand up new international economic and security organizations tailored to the problems of the 21st rather than the 20th century (yes, NATO, I’m talking to you). It needs to embrace the immigration (i.e., demographic health) and invest in innovation—the only things that stand between it and the second-tier fate that befell major European economies.

Most of all, it needs to lay out a realistic plan for solving this simple fact: Our economy can’t produce enough revenue as currently configured to pay for the defense, social benefit,s and infrastructure improvements necessary to keep pace in this changing world. And both candidates have used the ridiculous fig leaf of the looming fiscal cliff negotiations as cover for avoiding the topic.

Do I think Obama deserves more credit for trying? Yes—Romney’s “plans” for the deficit are neither economically nor politically plausible. But Obama’s high marks were earned during those 2010 budget talks. Since then, having been tactically outflanked by the naysayers in the GOP House, he has dropped the subject for the most part. You can almost hear David Axelrod warning against words like “sacrifice” or “sharing the pain” or even grand bargains.

So as you make up your mind ahead of Nov. 6, broaden your perspective just a bit. It’s too late for voters to force a longer term debate on the challenges facing the country: We just seem incapable of seeing anything but trees as we wander through the forest of the early 21st century.

But that doesn’t mean the world is going to wait for us. Once the election is over, Americans should insist on progress of some kind on these major issues. If Democrats lose the White House, they would feel justified, I’m sure, adopting the reprehensible legislative blocking tactics of the GOP. But they would be wrong. It was unpatriotic, frankly, of the GOP to do it. It would be no better as Democratic revenge.

Similarly, if the GOP fails to take the White House, the party’s leadership should finally stand up to its Tea Party radicals, renounce the obstructionist strategy adopted back in 2009 and work toward a grand bargain.

There does not have to be anything cataclysmic about China’s rise—nor in the retirement of the baby boom generation, the changing nature of energy markets or the challenges of job creation in an increasingly automated, interconnected global market. These are the kinds of problems the world’s greatest democracy used to be wired to solve. American ingenuity, after all, referred not to manifest destiny or some other airy, nonsensical slogan, but rather to the practical, non-ideological qualities that drove common sense decisions that once separated our politics from that of the “Old World.”

As I said a year ago, “the political game under way today ends not with control of the White House, a plan for a balanced federal budget, or a jobless rate suddenly hovering at a magical 8 rather than sour 9 percent. The larger picture—the new “Great Game,” if you will—is about managing the speed of America’s decline from the heights of hegemony to the more earthly altitude that 21st century gravity will impose.”

So far, through primaries, conventions, debates and endless stump speeches, both sides have failed to grapple with the big picture. On the next president’s watch, whom ever that president will be, such a failure will not just be his legacy; it will determine America’s 21st century destiny, too.

Oct. 25 2012 10:07 AM

Blue State, Red Face: Guess Who Benefits More From Your Taxes?

anti-tax slogans
Slogans at a 2010 anti-tax protest in Washington.

Photo by Alex Ogle/AFP/Getty Images

Picking up on yesterday's theme, the fiscal cliff, let's look at the wider context to the argument between left and right over taxes and spending cuts.

There are serious economists who study the difference between what our states pay in taxes and how much they get in return from the U.S. government. These people generally don’t draw political, let along moral, judgments from these numbers.

I’m under no such constraint. The numbers, for decades now, have been quite clear: With some exceptions, what we regard as red states are sent a whole lot more of your hard-earned tax dollars than the traditional blue states. In effect, supposedly indolent, “tax and spend” liberals actually subsidize the individualistic, pure, and hard-working lifestyle of our conservative countrymen.

Don’t believe me? Well, there’s plenty of room for quibbling about what constitutes a tax payment vs. a federal benefit. Let’s hash that out below in the comments section. But for simplicity's sake (and to account for the fact that it’s hard to label some states as purely red or blue, I’ve taken the most recent Electoral College Map from RealClearPolitics—which shows how these states would likely vote if the presidential election were today—and cross-referenced it with numbers from one of those places peopled by serious economists: the nonpartisan Tax Foundation.*


The results will stun many people, though not me: I’ve been telling my Tea Party relatives this for years. Here’s a list of the top 10 states that got the most back in terms of federal benefits, followed by the bottom 10. I’ve added the reasons why, when they’re obvious, in the space to the right.

To save space below, “pension benefits” include both Medicare and Social Security; “anti-poverty aid” includes Head Start, Low Income Home Energy Assistance, Food Stamp and nutrition programs for Women, Infants and Children (WIC), and several school-lunch-style benefits. 

Top Ten (Source: Tax Foundation):

1.        New Mexico           Indian reservations, military bases, federal research labs, farm subsidies, retirement programs

2.        Mississippi              Farm subsidies, military spending, nutrition and anti-poverty aid, retirement programs.

3.        Alaska                     Per capita No 1 recipient of federal benefits; infrastructure projects, DOT and pork projects.

4.        Louisiana                 Disaster relief, farm subsidies, anti-poverty and nutrition aid, military spending.            

5.        W. Virginia              Farm subsidies, anti-poverty and nutrition aid.

6.        N. Dakota               Farm subsidies, energy subsidies, retirement and anti-poverty programs, Indian reservations.

7.        Alabama                 Retirement programs, anti-poverty and nutrition aid, federal space/military spending, farm subsidies.

8.        S. Dakota                Retirement programs, nutrition aid, farm subsidies, military spending, Indian reservations.

9.        Virginia                   Civil service pensions, military spending, veterans benefits, retirement, anti-poverty aid.

10.     Kentucky                  Retirement programs, nutritional and anti-poverty aid, farm subsidies.

Now consider the bottom 10, i.e., the ones that give more to the federal government in taxes than they get in return. From 1 to 10, they are:

New Jersey, Nevada, Connecticut, New Hampshire, Minnesota, Illinois, Delaware, California, New York, Colorado.

Anything strange about that list? Yes, they are all blue states (or the deepest of purple).

Adding to this fallacy are the assumptions surrounding Mitt Romney’s now infamous comments about the indolent “47 percent” of Americans who regard themselves as victims and therefore pay no taxes. As the American Conservative magazine (no less) pointed out recently, nine of those 10 states are in the red-as-ruby Old Confederacy.*


Put another way, again by the American Conservative, “On the other hand, eight of the ten states with the highest non-payment rates are solidly Republican. The exceptions are New Mexico and Florida.”

Is your mouth agape?

Now, one more cross-reference: these facts compared with the know-nothing rhetoric of the Tea Party. There are only two ways to parse that result: one is ignorance—which we should be willing to forgive in anyone as long as they revise their views when faced with reality.

And the second? Selfish hypocrisy. How else can you explain the fact that the denizens of the most welfare dependent states in the country—dare we say, those who enjoy the most benefits from socialism—profess to abhor welfare?

This is a far cry from what most people think. My sense is that, if you asked the average American, they would assume that states benefiting most from federal spending are exactly the opposite—you know, those populated with Ronald Reagan’s “welfare queens” and lazy unionized auto workers.

I’ll be the first to admit this isn’t a black-and-white exercise. Plenty of questions need to be settled before clear judgments can be made. For instance, does an Army base and the federal money that goes into keeping it running and paying its troops count as a benefit? (It does in my book.) What about a federal prison? (Yeah, jobs and the tax revenues they generate should count there, too.) A private university that is showered with federal research dollars? (Again, yes, those funds count, too.)

But those questions get harder.

Agricultural subsidies? How do we count them—and do we subtract the tax revenues generated by the jobs the farm creates or the export earnings it provides?

And what about defense contractors? Connecticut, Washington state, and California are chock full of weapons merchants. They provide jobs, export income, and many other benefits. Should we count as a federal inflow to those states the money spent, say, on Sikorsky aircraft contracts in Connecticut? And how do we factor in the taxes those companies paid (assuming, unlike nearby General Electric, they actually paid taxes)?

And I admit, maybe we should dock Connecticut and New Jersey for the remaining outstanding balance of the TARP program?

All these accounting issues are over my head, I’ll freely admit. But I trust the figures above, compiled by the rock solid economists at the Tax Foundation, a nonpartisan research group—as a good indicator of the general state of our fiscal reality. When the reality has veered so far from the prevailing political bullshit, it’s time for someone to point it out.

So spare me all that red state angst about the federal deficits and national debt. When you stop spending New Jersey’s money, Tex, and produce a plan to replace it with your own revenue stream, then you've earned an opinion in the matter.

Corrections, Oct. 25, 2012: This blog post originally cited the Tax Institute for its data; the data were provided by the Tax Foundation. It also referred to the "blue-as-cobalt Old Confederacy." Those states are typically identified as red states.

Oct. 24 2012 10:40 AM

Hi Ho, Hi Ho, It's Off the Cliff We Go

If nothing else of note emerged from the third and final presidential debate of this election cycle, let’s at least thank Mitt Romney for saying a word that has been notably absent from this contest: “sequestration.”

It’s an ugly word—a typical euphemism of the Washington ruling class. It should not be confused with castration, though economically its effects on the American economy might be similar. Nor does it mean, really, what the word implies. To sequester is to take temporary possession of—to seize—with the intention of returning it. The Latin root, sequestrate, means “to surrender for safekeeping.”

That’s not at all what’s going on here. Sequestration, defined in terms of the current debate, is the result of the Budget Control Act of 2011—itself another silly euphemism. A more apt definition would be something like this: “To light a fuse of an economic explosion that provides a two-year smokescreen for political cowardice until after the next election, when we will come up with some new way to pretend this is all the fault of the other political party.”

But back to Romney: Thanks, Mitt, for bringing it up. Like most things he mentioned during his rope-a-dope performance Monday, this one instead got turned into a flurry of counterpunches by an unusually aggressive Obama, who hit Romney with solid but ineffective one liners on battleships and Iranian sanctions but then actually said something substantive when the topic was sequestration.

“[T]he sequester is not something that I've proposed,” Obama said. “It is something that Congress has proposed. It will not happen.”

So as I predicted, nothing new or useful on foreign policy emerged from the foreign policy debate. But economic policy is another matter, and “It will not happen” is news.

Why did it take three presidential debates, a vice-presidential contest, two political conventions, and six months (to be conservative) of nonstop campaigning before this topic, also known as the “fiscal cliff,” finally got some air time? For all the talk of deficits, national debt, tax burdens, and spending priorities this year, virtually no attention has been paid to the fact that we’re hurtling toward a legislatively created cliff that could remove up to 3.7 percent of our annual GDP growth from 2013. That is, by anyone’s definition, a sharp and sudden recession.

This is important—left unchanged, which markets so far have assumed is too insane, the fiscal cliff would remove up to 3.7 percent of U.S. GDP growth from the global economy next year.

But markets have been wrong many times before—and particularly when pricing in questions of sanity.

It’s good news, then, that all of a sudden the fiscal cliff is back! Check these Wednesday financial headlines:

The Hill! Look up fiscal cliff on Google Maps, and “the Hill” is precisely where it should be located. Concern is mounting. Imagine that.  

For those who don’t remember the fiscal cliff, let’s do a quick brush up:

The fiscal cliff refers to a combination of expiring tax breaks and automatic budget cuts, all of which hit on Jan. 1, 2013. Some economists have estimated that this puts as much as 3.7 percent of U.S. GDP growth at risk in 2013, with all the implications that could have for a possible U.S. or even global double-dip.

The Congressional Budget Office estimates the fiscal cliff, if it is reached without any legislative amendment, will result in tax increases and spending cuts that would increase federal revenues by 19.6 percent from 2012 to 2013 and reduce total federal spending by less than 1 percent.

The cliff comprises:

  • The expiration of Bush-era tax cuts, enacted in 2001 and 2003, effectively reinstating the top income tax rate of 39.6 percent from the current 34 percent. Capital gains taxes would rise from current 15 percent to 23.8 percent. (The average tax rate would rise from 19.3 percent to 24.3 percent, according to the CBO). This would amount to about 2 percent of GDP.
  • The effects of automatic spending cuts caused by the gridlocked budget talks of late 2010, when an inability to agree on fiscal plans led to the passage of the Budget Control Act of 2011, which sequesters up $65 billion—a hit of over 1 percent of GDP.
  • The expiration of a 2 percent reduction in U.S. payroll taxes, along with some depreciation advantages for capital purchases.
  • The extension of the Alternative Minimum Tax, which defrays taxes for the poor by levying them on families with incomes over $50,000, would spread to a vastly broader swath of society. It currently affects 4 million U.S. households, but without congressional action, it would affect 21.7 million households. Congress has routinely intervened to prevent families making under $150,000 from being affected, but in this year’s partisan atmosphere, this cannot be taken for granted.

Any decision to divert the great national campaign bus (presumably a late-model General Motors job that wouldn’t exist without the auto bailout, by the way) must be negotiated between Obama and Congress, which is as divided as ever and likely to remain so after the election.

Obama has regularly insisted he would not sign off on any solution to this issue that failed to include both cuts in spending and revenue-generating measures. This is rational but, of course, rejected by the GOP.

Romney, whom I thanked earlier for bringing the topic up, actually supports policies that would direct the national hot rod right over said cliff. Indeed, the cliff is not a product of nature but the result of a steady erosion of reason in the GOP over the past few years, culminating in the 2010 budget reconciliation process, when Tea-infused GOP House members decided that deficit reduction would have to rely exclusively on spending cuts and that tax breaks for the richest Americans passed by Bush the Lesser were sacrosanct. Their old-school leader, remember, John “I actually like coffee better” Boehner, was on his way to cutting a rational, grand bargain with Obama when the GOP’s self-deluding patriots dumped him in Boston Harbor.

So what could Obama possibly have meant by saying “It will not happen”? Neither the White House nor Obama’s spinmeister, David Plouffe, have been able to say with any plausible detail. The Right, of course, has reverted to what it does best—accusing the president of optimism. No more dire crime, it seems, exists among the GOP caucus.

Is Obama convinced that behind-the-scenes talks aimed at averting the fiscal cliff are well along toward a successful conclusion? Or that he will somehow be able to outflank his Republican opponents after the Nov. 6 election whether he wins or loses? (Remember, Obama will remain president until Jan. 20, 2013, even if he loses, and traditionally some of America’s most difficult and politically unpopular decisions are taken during these “lame duck” periods.)

I don’t know, and so far Obama isn’t saying. Like a woman describing her age or Israel its nuclear arsenal, the president seems to like “strategic ambiguity” when it comes to budget showdowns.

That would be the optimistic take, anyway. At best, he’s confident—and that’s OK if a bit unwarranted given what’s ahead of him.

At worst, he’s allowing his natural tendency to think the most of people cloud his judgment. That would be a tragedy. Remember, the United States had its credit downgraded the last time the clown car we call Congress met the Sphinx we call Obama on this issue. The fallout, not just for the United States but for the entire teetering global economy, could be far worse this time around.

Oct. 22 2012 6:50 AM

Move Over A-Rod; Make Room for O-Rod

Obama, A-Rod and Jeter
O-Rod and A-Rod (top right) in happier times, alongside Yankee shortstop Derek Jeter (left) during an event honoring the 2009 World Series in the East Room of the White House.

Photo by SAUL LOEB/AFP/Getty Images

Hell, they say, hath no fury like a woman scorned.

The woman in question here is the American electorate – and in particular, its liberal, Venusian side. With the final lap of his re-election campaign about to commence, Barack Obama must be wondering: Where is the love?

I was there, in Denver, the night Barack Obama gave his acceptance speech in 2008 to the Democratic National Convention. Beside me was a lifelong Republican, Bill Turcotte, scion of a Navy family and a friend since we were both 16 years old. Bill was deeply reluctant to be swayed by the Democratic candidate’s rhetorical flourishes, but he was deeply shaken by what George W. Bush had done in America’s name during his tenure.

But the flags and the tears of joy and the unmistakable passion of the young crowd that packed Denver’s Mile High Stadium moved Bill, too. “I wish I could believe he could do what he’s promising,” Bill told me (though he’ll be mortified to see it in print). “I just get the feeling he doesn’t know what he’s getting into. He’s going to get murdered in Washington.”   

Bill was dead right. Obama got his clock cleaned in Washington during his first term, health reforms or not. And now, trapped between the expectations raised by his 2008 superstar persona and the glum realities of a man hemmed in by a balance sheet recession and a cynical but effective political opponents, Obama is striking out.

As my readers will know, I'm not one to pepper my copy with sports metaphors. But today's an exception.

A-Rod – Alex Rodriguez, the Yankee slugger who is baseball’s highest paid player, was benched last week after going 3-25 in the American League playoffs, largely because he lost the ability to hit right handed pitching. Sportswriters once assumed A-Rod would be remembered as the best all-around baseball player of all time. He arrived in New York in 2004 with all the fanfare of a messiah. Now the Yankees are trying to figure out whether it would be better to cashier him, in spite of the $114 million they still owe him, then watch him stumble through another four seasons.

To a not insignificant number of voters who supported Obama in 2008, this is precisely how they view the president’s re-election bid.

So, is Obama about to suffer the same fate as A-Rod? Come to think of it, I can’t think of a single right handed pitch he’s got a good piece of since at least the midterm election. Is Obama turning into O-Rod?

The man I must trust at this point with electoral prognostications, Nate Silver of The New York Times, keeps telling Democrats to calm down. Gallup’s neck-and-neck polls, he says soothingly, have a tendency to be wrong at big moments. And, as Al Gore will tell you, you don’t win a presidential election by winning the popular vote: the fact that Obama continues to lead state-wide polls in places like Iowa and Ohio makes it tough for Romney to put together the electoral votes he’ll need to win.

But “scorn” has a great deal to do with the fact that the race is as close as it is. Whether it’s the centrist small business owner who is exasperated by the lack of economic growth or the crusading liberal who can’t forgive the fact that Guantanamo remains opened, Obama has not delivered.

The results can be very ugly.

And so I return, for a moment, to baseball. I was there in Seattle’s Safeco Field in April 2001 the first time Rodriguez returned to the city that nurtured his career after leaving for the Texas Rangers and a record-setting $262 million contract. The children of Seattle screamed “shame” at the top of their lungs that night, and the crowd rained $1 bills down upon on “Pay-Rod,” the star who spurned them – a man who, just a few weeks earlier, would been have trusted to pick up their children at school by just about everyone in town.

A-Rod has had a decent career since, leaving Texas for the Yankees in 2004, and performing decently, though not extraordinarily, until his collapse in this year’s playoffs. But you won’t find a lot of A-Rod fans in the Bronx. The Daily News’ annual “Keep ‘Em or Dump ‘Em” poll set records for participation this year, largely due to the 72 percent who logged on to vote against A-Rod. He never met expectations; he never came near them.

In that context, it’s worth considering the whole quotation from the Congreve, who penned that famous line about “a woman scorned” for his play The Mourning Bride.

"Heaven has no rage like love to hatred turned, Nor hell a fury like a woman scorned,"

Unlike A-Rod, Obama is not being sidelined by age, nor did he take performance enhancing drugs. His rhetorical gifts may be as sharp as that day in 2008 when he told his supporters: "Enough," to the politics of the past. You understand that, in this election, the greatest risk we can take is to try the same, old politics with the same, old players and expect a different result.”

The polls keep telling us that women are not Obama’s problem, and he still may pull this out. But Congreve’s words remain relevant. Among all too many who supported the bright-eyed young man in 2008 based on his promises, “the same old politics” is precisely what they feel they got in return. As with A-Rod, love has turned to hatred.

Oct. 22 2012 3:26 AM

Is Anything More Foreign to Americans Than Foreign Policy?

From my column for The National today:

'Be careful what you wish for," my mother used to say, "because someday you may just get it."

And so I have. After years of bemoaning the absence of foreign policy issues in US presidential campaigns, even during the hyperactive unilateralist madness of the George W Bush administration, my mother's words have come to pass. As we wind our way towards the November 6 presidential election, a too-close-to-call race for the most powerful office in the world may well come down to a televised debate on foreign policy.

Of course, the United States faces some of the most serious challenges in its history at the moment, many of them emanating from abroad. The ability to adjust to the realities since the 2008 financial crisis is the paramount foreign policy challenge of the day, challenging Americans to rethink their role in a world where economic power and political influence are shared among many actors.

This requires careful, long-term planning and frank conversations with friends and foes alike on topics as diverse as the future of global finance, the proliferation of nuclear weapons, the use of drones in warfare, the threat of drug-resistant pandemic diseases, the continuing need for leadership in settling territorial disputes in the Middle East, the two Koreas and the South China Sea, and the reform of international institutions that still reflect the status quo of 1945.

I should be ecstatic that a prime-time forum on foreign policy will be watched by millions of Americans.

Yet the prospect of President Barack Obama and Mitt Romney trying to out-duel each other on how the United States should handle the changing world is terrifying.

Read the rest at The National

Oct. 17 2012 5:04 PM

Will Foreign Policy Finally Matter? Don't Bet On It

pointing at the debate
Besides the points ....

Photo by SAUL LOEB/AFP/Getty Images

This, I’m afraid, will be a cynical post.

Strangely, almost frighteningly, the election on November 6 may be coming down to matters of foreign policy. Not the substance of foreign policy, of course – very few presidents, let alone candidates, ever set foot on that ground. Yet a debate over foreign policy now stands between each of these men and four years in the White House. So let’s, just for a moment, take seriously the idea that things outside America’s borders may make some small impression on our electorate.

What will the debaters talk about?

Almost certainly, the debate will focus on issues that are in the headlines, but not on the long term solutions to those issues or even what they mean over the long-term to the United States. Like most political “conversations” in our country these days, developments overseas are just so many buoys around which to deftly navigate, opportunities to make the other side look bad rather than to demonstrate one’s one grasp on the subtleties.

Consider the likely topics of this clash of foreign policy titans:

·         There will be a fruitless back-and-forth over who is “soft on China,” as if the US is in a position to be harsh with the country that covers its deficit spending each year on international markets.

·         They will vie with each other, these two gentiles, to be more pro-Israel than Alan Dershowitz, promising to back Israel come what may, with the Palestinians cast as a kind of annoyance if, indeed, they come up at all.

·         There will be the same empty threats cast at Iran: Each, in his own way, has said what Obama did at the UN last month – that as president he would ensure “we do what we must to prevent Iran from obtaining a nuclear weapon.” But neither has a creative plan for doing so, and as a result the Israelis and Iranians set the agenda and the world slips closer and closer to accidental conflict (with all the economic and human tragedy that would bring).

·         And, of course, there will be great time wasted on the recent violence in Libya. Here I feel less guilty being so cynical, for what could be more cynical than elevating whatever it is that happened in Benghazi to the level of a major foreign policy issue. It’s not – this is not man bites dog, this is dog bites man. In a country awash with weapons and struggling to regain its footing after the ouster of one of the 20th century’s most despicable dictators, shit is gonna happen. Should we have had more security in Benghazi? Yes. Should our intelligence agencies and political leaders have been better at reporting the actual facts afterward? Yes. Did the GOP repeatedly cut funding for such security? Yes. Does this have any deep meaning? No. Libya today is a dangerous, unpredictable place, like the Lebanon of 1982 that Ronald Reagan dispatched US troops to, or the Somalia of 1993 (where officials reporting to both George H.W. Bush and Bill Clinton turned down requests to deploy armored vehicles). Americans are targets in such places and if we’re going to be on the ground there we’re going to lose people on occasion.

What do I wish they’d talk about? Pressed for a list of the Top 5 topics that would benefit from such a debate, it seems inconceivable my choices would appear in a presidential debate (read: marketing exercise). The topics, like reality, don’t necessarily conform to “foreign policy” as an academic would define the topic. The world doesn’t work that way, folks, if it ever did. But caveats aside, my five would be as follows:

·         1. Restructuring US foreign and defense policy for a world where no single power dominates. To me, this is the long game defined. It means removing almost all American forces from Europe, lightening our footprint in the Middle East, opening top international leadership posts (like the World Bank and IMF presidencies) to someone other than the US and Europe, and informing our more powerful allies (Japan, Germany, South Korea, the Saudis) that they have to start footing the bill for their own national security. We want stability long-term, then we need to avoid becoming brittle.

·         2. Convening a regional nuclear conference in the Middle East. Here, at least, would be a constructive way to break with the futility of the current approach. Just spit balling here, but if the US offered diplomatic recognition to the Iranian government and a gradual reduction in sanctions in exchange for open talks with Israel and Israel’s accession to the Non-Proliferation Treaty (NPT), we would at least have the basis for a discussion. We offer Israel an above-board military defense treaty, like the one we have with Japan, in exchange for its cooperation. Right now, we’re talking to Iran through diplomatic channels about a program they pretend doesn’t exist. The result of such an approach has an obvious end: See North Korea. We talked to Mao, we talked to Stalin: Is it really so impossible to talk to Khamenei?

·         3. Proposing a comprehensive reform of the UN Security Council that eliminated entirely the permanent (P-5) veto power and reconstituted the panel as follows: US, China, Britain, Russia, France, Germany, India, Brazil, Nigeria, Egypt, Mexico, South Africa, Japan, Turkey and Indonesia. The rest can, well, rotate. This not only reflects modern economic and political realities. It also creates a panel where, on almost any issue, there is a majority for the world’s democracies. The veto merely provides an excuse for any P-5 country to avoid compromise, whether it’s Russia on Syria, China on its islet fetish, or the US on Israel. Get rid of it (or at least show we're willing to try).

·         4. Proposing an Asia-Pacific Community that charts a path toward a free trade zone and insists as a condition of membership that all nations submit any territorial disputes to the International Court of Justice for mediation. Hint strongly to Beijing that the alternative is a Pacific version of NATO (Japan, Australia, South Korea, Taiwan, Indonesia, possibly India) aimed at helping US allies defend their claims from a rising China. That is a Chinese nightmare but it’s also precisely where all this leads if America is not proactive while it’s still the big kid on the block. Then it becomes an American nightmare.

·         5. Downsizing in the Persian Gulf: As less and less of our energy needs are met by Middle Eastern sources (and China, India, Japan and Europe grow more dependent), the US should lead the conversation about what replaces the US Navy as the ultimate guarantor of Asian and European energy supplies. While oil is a global commodity and any choking off of supply raises prices everywhere, the incentives for the US are changing. The discovery of major Brazilian oil deposits, the increase in American domestic sources through tight oil and offshore drilling, along with the fact that Venezuela has recently displaced Saudi Arabia as the nation thought to have the largest reserves of oil on the planet, means that our dependency on the Mideast is waning. In 30 years, the US simply won’t have the incentives to play policeman there, and if we can use our influence today to create an international naval agreement to demilitarize the Strait of Hormuz, the Malacca Straits and other major waterways. Just as Europe freeloads on US defense capabilities in its backyard, Asia – and China, especially – depends desperately on the “public service” provided by the US navy in keeping shipping lanes safe and open. As incentives change, Asia needs to pay its way, one way or another.

So, what are the chances any of this will get aired? probably less than zero. Even when long-term thinking would actually benefit a candidate’s cause, in this race at least, they’re not up to it.

Last night provided Obama an opportunity to score a major point when Mitt Romney harped on the damage the “last four years” allegedly did to “middle income families. Obama’s inability to articulate the counter-argument - that the US middle class has actually been losing ground for three decades, since at least 1980 – was deeply depressing. Instead, he lamely offered that the problem had been around “10 or 15 years,” as if income inequality began during the Clinton years.

How, given the incentive he has to make a cogent case on this topic, could he not know that:

·         In 1988, according to the IRS, average income in the US was about $33,400, adjusted for inflation. In 2008, that number was $33,000. Meanwhile, the top 1 percent saw their incomes grow by 33 percent over the same period. (Not to mention the fact that they can now keep far more of that income away from the tax man, while the poorer middle class cannot, by and large).

·         In 1980, a high school diploma helped a worker earn about 71 percent of what a college-educated worker could pull in. In 2010, that number fell to 55 percent.

It makes you want to cry – both the facts and the fact that the uber-articulate incumbent is incapable of explaining this to the electorate. What hope of any real discussion in the more abstract world of foreign affairs?